Wednesday’s ETF Chart To Watch: iShares MSCI Japan Index Fund (EWJ)

ETF Database

Dec. 21, 2011, 4:00 AM

Euro zone worries took a backseat as investors instead turned their attention to the latest U.S. housing market data. The bulls came charging through Wall Street on Tuesday as new home starts in November surged to multi-month highs, showing signs of life in the battered down housing market. The Nasdaq charged ahead with a strong 3.19% gain on the day, while the Dow Jones Industrial Averaged clinched and equally impressive 2.87% gain. Gold drifted higher amidst the equity market euphoria and futures prices for the precious metal closed near $1,615 an ounce [see Are Gold ETFs The Best Defense Against Euro Drama?].

The iShares MSCI Japan Index Fund (EWJ) is our ETF to watch for today as it may experience a gap once trading on Wall Street commences later in the day. EWJ could experience volatile trading as investors react to the latest Bank of Japan meeting and economic outlook issued after the rate decision itself [see EWJ Holdings]. Analysts are expecting for the interest rate to remain unchanged at 0.10%, although the economic commentary issued by the bank could provide additional insights.

Chart Analysis

Japanese equities have been in a seemingly perpetual decline since the start of 2011; the devastating earthquake in the beginning of the year took its toll on investors confidence, while resurfacing Euro zone debt woes have created additional headwinds for the prosperous island nation. EWJ has been trading below its 200-day moving average (yellow line) for the majority of this year, and it appears to have recently bottomed out at $8.83 a share on 11/23/2011 [see EWJ Returns]. Establishing a long position in EWJ at current levels is very speculative seeing as how this ETF has been consistently making lower-highs and lower-lows since the start of 2011.

Click to Enlarge

This ETF is currently re-testing support at the $9 mark, seeing as how it previously bounced higher after hitting this level on 11/23/2011.

Outlook

If the Bank of Japan issues a surprisingly upbeat economic outlook following the interest rate decision, Japanese equities could soar higher bolstered by optimism [see also Evaluating India ETFs: Three Important Factors To Consider]. Likewise, EWJ may jump past $9.25 a share, although we would advise short-term traders to lock-in profits near the $9.75 mark over the coming weeks, seeing as how this is a significant level of resistance. On the other hand, if investors fret over the Bank's decision and outlook, selling pressures may prevail. In terms of downside, EWJ may sink to a new low beneath $8.83 a share which would be quite worrisome. As always, investors of all experience levels are advised to use stop-loss orders and practice disciplined profit taking techniques.